Marjan Senjur


European Monetary Union, small middle-income countries, Slovenia, instability, price uncompetitiveness, internal surrogate devaluation, growth slowdown


The thesis of this article is that a small country with a below-average per capita income is in a disadvantaged macroeconomic position inside the euro area. Small middle-income countries expected an acceleration of growth by joining the EMU. They were hoping to catch up in the convergence process within the euro area. Yet things turned out differently. The crisis in 2009–2012 has led to excessive instability due to exogenous macroeconomic prices and the lack of a lender of last resort for sovereign debtors. Small MICs are more vulnerable to asymmetric shocks from abroad due to the ‘one-size-fits-all’ economic policy at the EMU level. This is reflected in the excessive volatility of real economic variables (such as GDP and unemployment), and excessive financial instability (such as indebtedness) and sovereign debt. The crisis also revealed weak price competitiveness of exports due to overvalued exchange rate of the euro and overall under-average productivity of the MICs. MICs had to respond with deflationary internal (surrogate) devaluations and depressed aggregate demand. Measures of internal surrogate devaluations may partially improve situation in the medium term, yet they may worsen the competitive growth situation in the long run. A macroeconomic environment of macroeconomic instability and weak competitiveness may trigger a slowdown in growth.